Analysts cut TCS’ FY16 growth forecast to industry levels

MUMBAI: Shares of Tata Consultancy Services lost about 2% on Monday after the company’s weak mid-quarter update led analysts to cut its FY16 growth expectations to industry levels. The largest IT services company in the country has consistently topped the industry growth rate over the last few years. TCS’ weak outlook also pulled down other IT stocks as investors pulled back on growth expectations for the sector. Infosys closed down 2.65%, Wipro was down 1.2% and HCL Technologies lost about 0.5%.

In its mid-quarter update on Thursday, TCS had said the first two months of the fourth quarter had gotten off to a slow start, as an acceleration in spending failed to materialise. TCS has been a large beneficiary of the uptick in discretionary spending and its cautious outlook worried analysts who lowered their growth expectations for the firm.

“The company highlighted that January and February witnessed a slow start from a budget spending pattern perspective. Though a similar trend was witnessed in Q4FY14, TCS was hoping for better acceleration this year but was disappointed,” Abhishek Shindadkar, analyst with ICICI Direct, said in a note.

In a worrying sign, analysts cut their FY16 growth expectations for TCS and few now expect the company to beat the industry growth rate. Nasscom has said that IT industry would grow 12-14% in the next financial year.

ICICI Direct’s Shindandkar expects the company to grow 13% in dollar revenue terms in FY16. Spark Capital’s Srivathasan Ramachandran expects the company to post FY16 dollar revenue of about 12.6%, after accounting for constant currency headwinds. Emkay Global Financial Services expects the company to grow 13.2-14% in FY16. Ambit Capital expects FY16 growth of 13.1%.
TCS has indicated that it could beat the industry growth guidance for the next financial year but said it would give detailed outlook when it releases its fourth quarter results in April.

The company’s management also pointed out to the fact that TCS has beaten the industry’s growth rate in the past. But not all analysts are convinced.

“Management said TCS would beat Nasscom revenue growth estimates for next year and would give a detailed commentary of spends across verticals and geographies post Q4FY15 results. We note that in 4QFY14 TCS highlighted confidence in being ahead of Nasscom estimates in FY15,” Spark Capital’s Ramachandran said in a note.